5.1 Indicate whether the following statements are True or False - NSC Accounting - Question 5 - 2017 - Paper 1

To prepare the note for Factory Plant and Equipment, the following calculations are necessary:

(a) Determine the carrying value of the factory plant as of December 31, 2017:

• Cost = R420,000
• Accumulated depreciation at the start = R198,000
• Depreciation: calculate based on the movement and the rate of 15% per annum. Assume the rate is based on the initial cost.

Carrying value = Cost - Accumulated Depreciation = R420,000 - R198,000 = R222,000

(b) Depreciation for the year:

• For the new equipment purchased: Additions = R76,000
• New carrying value to consider.
• Considering the depreciated equipment value, calculated at 15% on the basis of previous values and added equipment, the outcome needs to be noted in the financial reporting.

A format can be summarized, indicating the carrying values and disposals reflecting losses accounted throughout the year.

The overhead costs for producing jackets are compiled as follows:

1. Indirect Labour: R300,000

2. Indirect Material: R52,750

3. Water and Electricity: Itemized based on usage, mainly attributable to the factory work

   Itemized: R98,000 * 60% = R58,800

4. Insurance: R32,300 - R2,800 (whole factory)

5. Rent Expense: R102,000 * 80% = R81,600

6. Depreciation: For factory plant, previously calculated outline resulting in R62,850.

7. Factory Sundry expenses: R19,150.

Summing these individual costs gives:

• Total Factory Overhead Costs = R582,000

The formula for calculating the cost of sales is:

Cost of Sales = Opening Inventory + Purchases - Closing Inventory.

Given:

• Opening Finished Goods: R46,000
• Purchases: 29,500 × R60 (Cost Recognition) = R1,770,000.
• Closing Finished Goods: R41,000

Plugging in these values:

Cost of Sales = R46,000 + R1,770,000 - R41,000 = R1,775,000.

To determine the break-even point (BEP) for jackets:

1. Understand Break-even Equation:

   • Break-even point (in units) = Total Fixed Costs / (Selling Price per Unit - Variable Cost per Unit)

2. From Information Provided:

   • Fixed Costs for jackets = R41.20 per unit.
   • Selling Price per unit = R115.
   • Variable Costs for jackets = R73.

3. Plugging Values into the Equation:

   • Total Fixed Costs = 618,000
   • BEP Calculation: ext{BEP} = 14,715 = rac{618,000}{115 - 73} = rac{618,000}{42}

Thus, confirming the break-even points with calculated outcomes.

Each product has different dynamics in break-even analysis.

• Jackets: The break-even point is at 14,715 units. This means 10,362 units sold cover costs, but variance exists within production levels determining profitability.

• Caps: Similarly, caps experience a BEP of 7,134, revealing production strategies needing refinement to optimize efficiency and profits. Adjusting variable costs could be beneficial, ensuring costs are kept under control.

To determine the percentage increase in the selling price of caps:

1. Selling Price in 2016: R67.50

2. Selling Price in 2017: R54.00

3. Calculate Increase:

   • Increase = New Price - Old Price = R54.00 - R67.50 = -R13.50 (it would indicate a decrease).

4. Percentage Increase Formula: ext{Percentage Increase} = rac{ ext{Increase}}{ ext{Old Price}} imes 100

   ext{Percentage Increase} = rac{-13.50}{67.50} imes 100 = -20 ext{ extpercent}

   Since this is a negative value, it indicates a price decrease instead.

The owner felt it necessary to increase the selling price due to the lack of profit recorded in 2016, where the production volume was insufficient to cover costs. As such, raising the selling price would ideally adjust consumer expenditure while also helping realize better cover costs based on production levels.

For both jackets and caps, the following variable costs experienced unregulated increases:

Jackets: Labor cost was noted to have increased by 24% from R12.50 to R15.50. Suggested Solution: Control overtime labor by optimizing scheduling.

Caps: Variable costs related were identified rising from R7.20 to R9.30. Suggested Solution: Investigate supplier commission adjustments, conducting strategies to streamline overall costs while enhancing profitability.